Global Economics

Blyk's Radical Mobile Phone Plan

The nascent London/Helsinki-based mobile outfit won't be the first to offer free calls in exchange for ads, but it aims to target consumers

A new company backed by some of the leading names in European technology is setting out to shake up the wireless business with an offer that can't be beat: free phone calls. Called Blyk, it aims to launch in mid-2007 in Britain and then roll out service on the Continent. The catch: To get the service, customers will have to sign up to receive ads on the screens of their handsets.

Few startups enjoy Blyk's gold-plated backing. Its CEO is Pekka Ala-Pietilä, the former president of Nokia (NOK), and the roster of other Nokia veterans on the staff includes Marko Ahtisaari, who was previously director of design strategy for the Finnish mobile giant. Blyk's financial backers include Paris-based Sofinnova Partners, one of Europe's top venture capital firms. "For a venture capitalist it's challenging to find a team like that," says Jean Schmitt, a managing partner at Sofinnova. "These guys are totally proven."

BusinessWeek has learned that the company, based in London and Helsinki, also counts as one of its investors Hasso Plattner, the billionaire chairman of German software maker SAP (SAP) and one of Europe's most prominent tech entrepreneurs. Plattner could not be reached for comment.

Youth Market

Why are so many smart people backing a company that has no revenue and doesn't even plan to start operating until next year? If the company's approach proves successful, industry watchers say, it could dramatically affect the mobile phone industry and pose a serious threat to existing operators. "It's going to change the business model for mobile telephony in a big way." says Falk Müller-Veerse, managing partner at Cartagena Capital, a Munich-based boutique investment bank specializing in the mobile phone industry.

Blyk's free, ad-supported service initially will be aimed at British 16- to 24-year-olds. They're prime targets for youth-oriented advertisers, and they are at the vanguard of the trend for using phones not just for talking but also as multimedia devices capable of playing music and video.

Ad-supported mobile service is not a completely new idea. In the U.S., for example, Xero Mobile is planning to offer low-cost mobile service to college students who agree to watch a certain number of ads (see BusinessWeek.com, 4/14/06, "Will Xero Mobile's Numbers Add Up?"). Virgin Mobile USA also gives customers free minutes of service if they watch ads.

Unobtrusive Advertising

But Blyk co-founders Ala-Pietilä and veteran ad exec Antti Öhrling promise that their offering will be different. Instead of a reward system, the messages will be targeted to users and be integrated seamlessly with the handset.

"The fundamental principle is that advertising never interferes with primary function of the phone," says Öhrling, chairman and CEO of Contra Advertising, which has offices in London and several other cities around the world. "If you do it in the right way, it's not just how much [advertising] can you tolerate—it's something people find useful and fun."

The two founders, both 49, who have known each other since they were university students, are coy about how the service will actually work. They say they don't want to reveal too much before the service launches next year. Blyk—a made-up word with no meaning in Finnish—will debut in Britain because it's the second-largest ad market in the world.

Learning the Fundamentals

Blyk will be a so-called mobile virtual network operator, or MVNO, meaning it will market service under its own brand but use the wireless network of an operator still to be named. MVNOs such as Virgin and easyMobile have proliferated in Europe "but nobody has done it as a free operator, which is really the novelty," Cartagena's Müller-Veerse says.

The startup also faces serious challenges, which raises skepticism in some industry observers. Carrie Pawsey, an analyst at London market research firm Ovum, cautions that the MVNO model is not as easy as it looks. "The idea is very good, but the practicalities of running a mobile service are often overlooked," she says.

For example, getting young people to sign up for the service will be a challenge, as will the logistics of shipping customers the SIM cards they need to use, and making sure the technology works. Ala-Pietilä and Öhrling wouldn't discuss details of how they plan to market Blyk.

Good Reputations

Blyk must also convince advertisers. Theoretically, advertisers will be able to target their audience more precisely than is possible with broadcast TV or radio. But analyst Pawsey argues it will be difficult to measure what effect the ads are having. "What's to say it's better than TV or another medium?" she says. "Media companies will be looking for quantification" (see BusinessWeek.com, 3/24/06, "Now Playing on Your Cell Phone").

Still, Blyk was generating buzz among insiders even before the founders opened the kimono on Nov. 2. And the company has instant credibility because of its management and backing. Says venture capitalist Schmitt, "In this respect it's not a startup." Soon the market will determine whether consumers are as enthusiastic as the backers.